SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation

Chopra & Peter Meindl

Sunil

Chapter 1
WHAT IS A SUPPLY CHAIN
Consists of all parties involved, directly or indirectly, in fulfilling a customer
request. The SC includes not only the manufacturer and suppliers, but also
transporters, warehouses, retailers, and even customers themselves. Within
each organization, such as a manufacturer, the SC includes all functions
involved in receiving and filling a customer request. These functions include,
but are not limited to, new product development, marketing, operations,
distribution, finance, and customer service.
Primary purpose of a SC: Satisfy costumers needs and in the process generate
profit for itself.
A SC is dynamic and involves the constant flow of information, product and
funds among different stages in both directions.
A typical SC may involve a variety of stages:
-

costumer
retailers
wholesalers/ distributors
manufacturers
component/ raw materials suppliers

Objective: Maximize value generated

Value: surplus of a SC = Difference between the value of the final product to
the customer and the costs the entire supply chain incurs in filling the
customer request.
Value for the customer: Maximum value willing to pay
Customer value price = customer surplus
Revenue cost = SC profitability
Profitability

Succesful

Surplus

For most profit-making supply chains, the SC surplus will be strongly correlated
with profits.
SC success should be measured in terms of SC surplus
Only source of revenue is the customer
SC design, planning and operation decisions play a significant role in the
success or failure of a firm. To stay competitive a SC must adapt to changing
technology and customer expectations.

SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Chopra & Peter Meindl
PHASES IN A SUPPLY CHAIN

Sunil

Successful SC management requires many decisions relating to the flow of

information, products and funds. Each decision raise SC surplus.
Three categories or phases, depending on the frequency and time frame during
which a decision phase has an impact.
1. Supply chain strategy or design: How to structure the SC over the next
several years.
- Configuration
- Allocation of resources
- Processes each stage will perform
- Outsource or in-house function
- Location and capacities of production
- Warehousing facilities
- Number of locations for storage or manufacturing
- Modes of transportation
- Information System
A company must ensure that the SC configuration supports its strategic
objectives and increases the SC surplus during this phase.
Design or strategy decisions are made for the long-term.
Its expensive to alter in short notice
Companies must take into account uncertainty in anticipated market
conditions over the following few years.
2. Supply chain Planning: Time frame to 1 year
Strategy determines constrains within which planning must be done
- Forecast for coming year of demand and other factors (costs, prices in
different markets)
- Which market will be supplied from which location
- Subcontracting of manufacturing
- Inventory policies
- Timing and size of marketing and price promotions
Must include uncertainty in demand, exchange rates, and competition.
Companies try to incorporate flexibility and exploit it to optimize
performance.
PLANNING: is a set of operating policies that govern short-term
operations.
3. Supply chain Operation: Timer horizon is weekly or daily.
Decisions regarding individual customer orders.
GOAL: to handle incoming customer orders in the best possible manner.
- Allocate inventory or production to individual orders.
- Set dates by which they are to be filled
- Generate pick lists at a warehouse
- Allocate an order to a particular shipping mode and shipment.
- Set delivery schedules of trucks.
- Place replenishment orders.
Less uncertainty about demand information.
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SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Sunil
Chopra & Peter Meindl
GOAL: exploit the reduction of uncertainty and optimize performance.
PROCESS VIEWS OF A SUPPLY CHAIN
1. Cycle view:
Processes are divided into a series of cycles, each performed at the
interface between two successive stages of the supply chain.
Customer
Customer order cycle

Demand is external

Replenishment cycle

Order placement

thus uncertain
Retailer
are also
Distributor
projected

uncertain but can be

Manufacturing cycle

followed by a
Manufacturer
strategy

based on policies
particular SC

Procurement cycle
Supplier
Each cycle consists of 6 sub processes and each starts with the supplier
marketing the product to customers.
2. Push/Pull view: Processes divided into 2 categories:
- in response to a customer order REACTIVE PROCCESSES
- in anticipation to a customer order SPECULATIVE PROCCESSES
Push/Pull Boundary
(constrains)
Push processes

Process Process
1
2

Process

Pull processes

Process
k

Process
K+l

Process
N-1

Process
N

Customer Order Arrives

GOAL: Identify an appropriate push/pull boundary such that the supply
chain can match supply and demand effectively

SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Chopra & Peter Meindl
PROCESS VIEWS OF A SUPPLY CHAIN

Sunil

CRM: Costumer Relationship Management (customer-firm)

ISCM: Internal Supply Chain Management (firm)
SRM: Supplier Relationship Management (firm-supplier)
INTEGRATION BETWEEN THE THREE IS CRUCIAL

CRM:
Generate customer demand
Facilitate the placement and tracking of orders
- Marketing

- Pricing

- Order Management

- Sales
- Call Center Management

At an industrial distributor:
- Preparation of catalogs & MKT materials - Management of website
- Management of call center (takes orders and provides services)
ISCM:
Fulfill demand in a timely manner and at a lowest possible cost.
- Planning of internal production and storage capacity (Strategic Planning)
- Demand and Supply plans

- Fulfillment of actual orders

At an industrial distributor:
- Planning of the location and size of warehouses
at each warehouse

- Which product to carry

- Preparing inventory Management Policies

- Picking, Packing and Shipping
actual orders
SRM:
Arrange and manage supply sources for various goods and services
- Evaluation and selection of suppliers
- Negotiation of supply terms (pricing
& delivery)
- Communication regarding new products (design collaboration)
- Placement of replenishment orders (Buy)

- Supply Collaboration

For a supply chain to be successful, it is crucial that the three macro processes
are well integrated.

SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Sunil
Chopra & Peter Meindl
Firms should structure a supply chain organization that mirrors the macro
processes and ensures good communication and coordination among the
owners of processes that interact with one another.
EXAMPLES OF SUPPLY CHAIN
Gateway and Apple: Gateway was first PC manufacturer to start selling
PCs online without retail infrastructure. Then introduced aggressive
strategy of opening stores throughout US, with no finished-goods
inventory and focused on helping customers select the right
configuration to purchase. Then PCs were manufactured and shipped to
the customer. No success, was sold to Acer in 2007. In contrast, Apple
has always carried product inventory at its stores. Given its product
designs it carries relatively little variety in the stores.
Zara: Spains largest apparel manufacturer and retailer. Has grown
rapidly with a strategy to be highly responsive to changing trends with
affordable prices. Design-to-sales cycle times are four to six weeks (in
contrast to industry average of more than 6 months). Results, sells more
of its products at full price and has about half the markdown in its stores
compared with the competition. Manufactures using a combination of
flexible and quick sources in Europe and low-cost sources in Asia.
Responsiveness reduces inventories and forecast error. Also has invested
heavily in IT to ensure latest sales data are available.
W.W.Grainger and McMaster-Carr (MRO Suppliers): Both Sell
maintenance, repair, and operations products, both have catalogs and
web pages. W.W.Grainger has several hundreds stores, customers can
walk into a store, call in an order, or place it via the website. Orders are
either shipped or picked up by the customer. McMaster-Carr, ships almost
all its orders (except some near its DCs pick up their orders). Neither of
the manufacture any product, they both primarily serve the role of
distributor or retailer. Their success is largely linked to their supply chain
management ability.
Toyota: Top auto manufacturer and has experienced significant growth in
global sales. A key issue facing is the design of its global production and
distribution network. Whether to be global or local is also an issue for
Toyotas parts plants and product design.
Amazon: Sells books, music, and many other items over the internet and
is one of the pioneers of online consumer sales. Started by filling all
orders using books purchased from a distributor in response to customer
orders. As it grew, the company added warehouses, allowing it to react
more quickly to customer orders.
Macis: After selling for decades form its department stores, Macys has
made a big push into omni-channel retailing, allowing customers to have
a seamless experience between shopping online or at a store. If
customers desire, orders placed online can be picked up at select stores
and items purchased online can be returned to stores.

SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Chopra & Peter Meindl

Sunil

Chapter 2
COMPETITIVE AND SUPPLY CHAIN STRATEGIES
Competitive Strategy: - Is relative to companys competitors
- The set of customer needs to be satisfy through products
and services
Value Chain
Finance, Accounting, Information Technology, Human Resources

New Product Development

Marketing and SalesOperations

Distribution

Service

Every function plays a role & must develop its own strategy
Product Development Strategy:

Specifies portfolio of new products

Dictates effort will be done in-house or outsourced

Marketing & Sales Strategy:

Market segmentation
Product positioning
Product promotion
Product Price

Supply Chain Strategy:

Nature of procurement of raw materials

Transportation to and from the company
Manufacture of the product or operation to provide the service
Distribution of product to customer
Follow up service specifications, and if in-house or outsourced

Supply chain strategy specifies what the operations, distribution, and service
functions, whether performed in-house or outsourced, should do particularly
well.
Includes a specification of the broad structure of the supply chain and what
many traditionally call supplier strategy, operations strategy, and logistics
strategy.
For a firm to succeed, all functional strategies must support one another and
the competitive strategy.
ACHIEVING STRATEGIC FIT
6

SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Sunil
Chopra & Peter Meindl
Strategic fit requires that both the competitive and supply chain strategies of a
company have aligned goals. It refers to consistency between the customer
priorities that the competitive strategy hopes to satisfy and the supply chain
capabilities that the supply chain strategy aims to build.
To achieve strategic fit:
1. Competitive Strategy + All functional Strategies
must fit together to form
a coordinated overall strategy
Each functional strategy must support other functional strategies and help a
firm reach its competitive strategy goal.
2. Different functions in a company must appropriately structure their
processes and resources to be able to
execute these strategies successfully.
3. Design of overall supply chain + role of each stage must be aligned to
support the supply chain
strategy
To achieve strategic fit a company must ensure that its supply chain
capabilities support its ability to satisfy the needs of the targeted
customer segment
A competitive strategy specifies, either implicitly or explicitly, one or more
customer segment that a company hopes to satisfy
Three steps to achieving strategic fit:
1. Understanding customer and supply chain uncertainty: Understand the
customer needs for each targeted segment and the uncertainty these
needs impose on the supply chain. These needs help define the desired
cost and service requirements. The SC uncertainty helps identify the
extent of the unpredictability of demand and supply that the SC must be
prepared for.
In general, customer demand from different segments varies along several
attributes:

Quantity of the product needed in each lot

Response time that customers are willing to tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation in the product

GOAL: identify one key measure for combining all of these attributes. This
single measure then helps define what the supply chain should do particularly
well.
Demand uncertainty: reflects uncertainty of customer demand for a product.
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SUPPLY CHAIN MANAGEMENT

Strategy, Planning and Operation
Sunil
Chopra & Peter Meindl
Implied demand uncertainty: is the resulting uncertainty for only the portion of
the demand that the supply chain plans to satisfy based on the attributes the
customer desires.
Emergency order

2. Understanding the supply chain capabilities.

3. Achieving strategic fit: If a mismatch exists, the company will need to
adjust strategies to aligned them.